U.S. Ambassador to Chinese Investors: America Wants Your Business

The new U.S. ambassador to China kicked off his first investment forum on the job with the hard sell: The U.S. is open for business and wants China to invest in what is expected to be an $8 trillion spending spree on upgrading its infrastructure, Max Baucus told a packed conference room at the U.S. Embassy in Beijing.

A few minutes into his presentation, however, the ambassador got down to a source of anxiety for many potential Chinese investors: an inter-agency review by the Committee on Foreign Investment in the United States, or CFIUS, that looks at the national security implications of a foreign takeover of a U.S. company.

“Most investment doesn’t go to CFIUS,” he told the gathering of U.S. and Chinese businesspeople in reassuring tones, adding that the percentage of rejections is “very, very low.”

“It’s not nearly the problem that some people think,” he added.

Seared in many Chinese memories is the failed $18.5 billion bid by China National Offshore Oil Corp. for Unocal in 2005, which fell apart over congressional opposition and American public distrust even before it had a chance to undergo a CFIUS review.

Many Chinese saw the failure of the bid as unfair, protectionist and a loss of face.

With many U.S. highways, bridges and electric power grids showing their age, Chinese companies see an opportunity to leverage their infrastructure expertise even as they remain wary of similar political hurdles.

This comes as Chinese follow earlier waves of Middle Eastern and Japanese investors in making high-profile U.S. acquisitions. These include Lenovo’s 2005 takeover of IBM’s personal computer division for $1.25 billion plus $500 million in debt, and Dalian Wanda Group’s 2012 purchase of AMC Entertainment’s cinemas for $2.6 billion.

Last year, Chinese foreign direct investment in the U.S. reached $14 billion, a doubling over 2012 levels, according to the policy-research organization Rhodium Group, exceeding the U.S. annual investment in China for the first time.

According to a report by the U.S. Chamber of Commerce, some $445 million in new investment is needed annually in U.S. transportation, energy and water infrastructure projects between 2013 and 2030, totaling $8 trillion. Over half of that will be in the energy sector.

Monday’s infrastructure investment forum brought together 130 Chinese and U.S. executives, U.S. officials and investment advisers to discuss infrastructure opportunities and the legal, regulatory and public-relations pitfalls that investors from China face in the U.S. In addition to national-security concerns, companies were also warned about popular opposition to foreign ownership, concerns over Chinese quality control and questions about China’s adherence to rule of law.

While it’s true that Chinese companies generally attract closer scrutiny than those from other countries, most ultimately get approved, said Mark Plotkin, partner with the D.C.-based law firm Covington & Burling. Foreign companies take a controlling stake in approximately 1,500 U.S. companies a year. Of those, around 150 are reviewed by CFIUS, with only a few rejected.

Getting past CFIUS often depends more on the specifics of the deal than the industry involved, Mr. Plotkin said. Deals that tend to be problematic include takeovers of companies that own advanced technology.

Location can have a significant bearing as well, analysts added. In most cases, buying an electricity grid in a relatively remote area wouldn’t be a problem, they said, but acquiring a grid in a large city or other strategic location, especially if an army installation were part of the territory, would be more likely to attract scrutiny.

Even a seemingly mundane investment can run into trouble if it’s in the wrong spot.

“A toll road tends not to be a problem,” said Alan Larson, a policy adviser to Covington & Burling and former CFIUS member.

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